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Heartland Manufacturing Renaissance

From City Journal

Photo by Karl Edwards / Unsplash

Not long ago, Ohio was a classic Rust Belt state, with high unemployment, massive outmigration, and a prevailing sense that time had passed it by. Between 1990 and 2010, Ohio lost more than 420,000 factory jobs. Then things started to turn around, as the state gained back nearly 100,000 industrial positions over the next decade, until the pandemic interrupted that growth. Local observers trace this success to the shale boom in the state, pro-business gubernatorial administrations, and aggressive training programs.

This is more than an Ohio phenomenon. Almost all the states with the fastest industrial growth are outside the coasts, led by Texas, Michigan, Florida, Kentucky, Tennessee, Arizona, Ohio, Minnesota, and North Dakota. Unsurprisingly, these are also the states that, according to Supply Chain Digest, offer the best conditions for manufacturers. Of the magazine’s top ten, all are in the South, the Midwest, or the Mountain region. Sadly, this recovery doesn’t yet include old industrial superstars like Chicago or Detroit. The new industrial wave is sweeping through places with diversified economies, paced by universities, good government services, and some tech-related businesses.

In Ohio, new plants are popping up in numbers second only to Texas. To put this in context, Ohio is booking new capital projects on a per capita basis at a rate almost 14 times that of California, according to a recent Hoover Institution study. “We really need practical skills more than anything for our business,” notes Andrew Lower of TDK Manufacturing, which makes components for Tesla as well as for semiconductor and medical-equipment firms. Lower helps run the factory floor for the company’s 420-person plant (up from 30 employees in 1999) in Columbus. “There’s an embedded history of manufacturing skills. This is a place that celebrates people who dress in blues and work in a factory.”

Ohio’s industrial revival comes at a propitious time. In 2019, the percentage of U.S. manufacturing goods that were imported dropped for the first time in nearly a decade, notes a recent Kearny consulting study. Much of the shift came as a result of rising wages in East Asia, which has reduced the labor-cost advantage for the region. The Reshoring Initia¬tive’s Harry Moser estimates that 20 percent to 30 percent of production by American firms now taking place abroad could eventually come back.

The pandemic may have accelerated these changes. In the early months of the crisis, the U.S. couldn’t produce medical equipment, notably masks and some drugs, since most production had shifted to China. Even the production of basic chemical products was difficult, and the Covid-driven shortage of chips crippled production of automobiles and other goods. The endless conga line of ships waiting outside the Los Angeles–Long Beach harbor illustrated the dependence of our country on others, including our most powerful rival. What was once seen as an easy transfer of work abroad has become increasingly problematic.

This process is changing the whole opportunity horizon, beyond just the industrial sector. Across the job spectrum, most Heartland states (outside deep-blue Illinois), as well as those in the South and Intermountain West, boast lower unemployment and better job creation than California and most northeastern states. Of the nation’s 51 major metros, Columbus, Indianapolis, Minneapolis, and Cincinnati are among those with the lowest unemployment rates.

Technology could provide a critical boost to the onshoring process. Many Ohio firms, like TDK and Ariel, use cutting-edge technologies like 3-D printers, robots, and computer-controlled machine tools that allow them to produce better and often cheaper products. John Wilczynski, executive director of America Makes, a manufacturing consortium funded by the U.S. Air Force and based in Youngstown, says that these “additive manufacturing” processes open new possibilities for companies to lower costs and craft parts that, in many cases, were previously available only in China or other countries. Wilczynski believes that “digitally distributed manufacturing” is key to helping U.S. firms compete more effectively. “The increase in efficiency pays for itself,” he says. “You can reduce the number of components and make them lighter. It is part of what we can do to make us more competitive in the long run.”

New technologies, many emerging from what remains the innovation hothouse of California, are creating the basis for industrial revivals in places like Ohio. For example, virtually all the 13 new battery plants in operation or on the drawing board in the United States are located in the Intermountain West (Nevada), the South (Georgia, North Carolina, Kentucky, and Tennessee), the Midwest ( Ohio), or Texas. California may have developed much of the dazzling technology used in electric cars, but it’s places like Tennessee that are now wooing multibillion-dollar electric-vehicle investments from major U.S. and foreign companies.

The expansion of new semiconductor plants—the spine of the modern economy—may be the most critical factor in any American manufacturing resurgence. In the face of China’s ambition to dominate the production of semiconductors and other advanced technologies, Intel plans to invest $20 billion in two Arizona plants in addition to its new Ohio facility. Taiwan Semiconductor Manufacturing Company, for its part, has committed to building a $12 billion new plant in Arizona, while South Korea’s Samsung plans to build a $17 billion facility in Texas. The return of semiconductor production in America has its skeptics, including TSMC founder Morris Chang himself, who says that the costs of operating and building plants in the United States remain too high. Yet even he is investing here. The 90-year-old Chang, whose firm rose in response to U.S. lethargy, may yet prove as inaccurate in this judgment as the leaders of Japanese electronics firms who never imagined losing their leading position to U.S.-based rivals like Apple.

Contrast all this non-coastal industrial activity with the situation in the highly regulated mega-states of California and New York, which rank among the worst performers in American manufacturing growth. California, the ultimate late-twentieth-century advanced industrial power, has hemorrhaged 700,000 industrial jobs in the twenty-first century. New York City, which boasted 1 million industrial jobs in 1950, saw those jobs fall from 200,000 in 2000 to roughly 40,000 today. In February, in what is becoming a pattern, a leading developer of hydrogen cars, Hyperion, moved from Southern California to Ohio, where it hopes to start manufacturing, invest $300 million, and create nearly 700 jobs.

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